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Paying off the mortgage early is a critical element of Dave Ramsey’s plan, but now that we have paid off all of our non-mortgage debt, we are contemplating when and if this step will be part of our financial goals.

Be sure to download our How to Pay Off My Mortgage Faster Calculator below.

As empty nesters, Rob and I are alarmingly aware of how rapidly time passes and how our decisions today impact our future.

We may have been pretty dense in our younger years as we thought we would always have more time. Now that we are fully cognizance of the fact that we will continue to age, we want to make sure that paying off our mortgage early is indeed in our best interest.

Rob and I currently have 229 payments remaining on our mortgage. If we do not pay a penny more on our monthly mortgage payments, Rob will be 65 years old once this bad boy is paid off!

Yikes!!

The burning question we have is: Should we pay off our mortgage early?

Paying off the mortgage

In this article, we will explore the financial benefit of paying off the mortgage early versus investing the money.

We will not explore any fancy debt repayment ideas that use debt to pay debt. Instead, we will just look at the repayment of home loans from the simple idea of increasing the monthly payment by a specified dollar amount with the goal of paying the mortgage off by a specific date.

Our review of accelerating mortgage pay off is not one of those complicated, somewhat sketchy ways of paying off debt. If you are up for that kind of thing, we highly recommend the video below: How to Pay Off A 30 Year Mortgage in 5 Years

In this post we will cover:

Dave Ramsey and paying off the mortgage early

Should we pay off our mortgage or should we invest?

Paying off the mortgage early vs investing the money

How to pay off my mortgage faster?

What will your mortgage payment need to be to pay off your mortgage fast?

Our current financial goals and paying off our mortgage fast

The cost of paying off our mortgage early

What is the benefit of paying off the mortgage early?

Download our How to Pay Off My Mortgage Faster Calculator

Dave Ramsey and paying off the mortgage early

To pay off our consumer debt, Rob and I followed Dave Ramsey’s 7 Baby Steps Plan. We had reached that point in our life that we were finally sick of being in debt. To accomplish this debt pay off, we started paying attention to our money, and we were able to tackle $50,000 of debt within a very short period.

As we were going through this process, we dreamed about our next step of paying off our mortgage by the time Rob turns 50. To be able to accomplish this, we would have to pay this baby off in four years.

Investing in the Future Baby Steps…

Baby Step 4 – Retirement Investing – – – > DONE!
Once you have built up a healthy emergency fund, it is time to invest in your retirement. Dave recommends 15% of your gross income for this step.

We are breaking this step a bit since our goal is to retire ahead of schedule.

Now that we are not putting all of our money toward our debt payments, we can focus on our retirement savings goals. As an empty nester, retirement feels like it is right around the corner and so we are a bit more aggressive then what Dave recommends.

We are contributing 15% of our gross pay into our 401k accounts

Our employers are adding another 7.5% of our total salary to our 401k accounts

We are opening ROTH IRA investment accounts for each of us, and we will fully fund those accounts

We are maxing out our Health Savings Account (HSA) and will utilize that money in retirement

Baby Step 5 – Save for College – – – > SKIPPED!
Rob and I can skip this one. Our daughter is 100% financially independent as she is currently serving our country and we are helping our son out with a few expenses that are already included in our budget as he earned a full-ride scholarship.

Baby Step 6 – Pay Off the Mortgage Early – – – > EVALUATING BENEFIT
Paying our mortgage off early is the step that has us stumped right now.

As of today Rob and I still owe $162,787.64 on our mortgage. Our monthly payments are $1,006.90. Our interest rate is 3.875% for the term of the loan.

To pay this off by Rob’s 50th birthday, we will have to increase our monthly payments to $3,666.49. That’s increasing our monthly mortgage payment by $2,659.59.

Should we pay off our mortgage or should we invest?

To help us to make this decision, we reviewed our current mortgage numbers to see what works in our best interest.

Since we hate to gamble, we are performing the most conservative comparison.

In this exercise, we will find out what our remaining balance, if any would be if we continued to pay our mortgage on time. We then took the additional money that it would require for us to pay our mortgage off in four years and either:

Put the difference in savings: As of the date, I am writing this post, our bank – Discover, is paying an interest rate of 2.08%.

Paying off the mortgage early vs. investing the money

EVALUATING BENEFITPaying our mortgage off early is the step that has us stumped right now. #finance #freedom #mortgagefree”> Following four years of paying our mortgage on time, our remaining balance will be $137,845.60. If we were to save the difference between the Scheduled Payment and the Accelerated Payment, the Monthly Investment of $2,659.59 at a 2.08% interest rate, we would have a healthy savings of $133,001.28 at the end of the four-year term. If we were to take that saved money and apply it our outstanding mortgage, we would only owe $4,844.32.

Following four years of paying our mortgage on time, our remaining balance will be $137,845.60. If we were to save the difference between the Scheduled Payment and the Accelerated Payment, the Monthly Investment of $2,659.59 and place it in a cookie jar, we would have a healthy savings of $127,660.32 at the end of the four-year term. If we were to take that saved money and apply it our outstanding mortgage, we would only owe $10,185.28.

Following four years of paying our mortgage on time, our remaining balance will be $137,845.60. If we were to save the difference between the Scheduled Payment and the Accelerated Payment, the Monthly Investment of $2,659.59 at sweet 10% interest rate based on the historical S&P 500, we will have a healthy savings of $156,177.75 at the end of the four-year term. If we were to take that saved money and apply it our outstanding mortgage, we would have $18,332.15 left over.

Paying Off Our Mortgage Early for Peace of Mind?

The difference between the first two outcomes was a bit surprising! When thinking of paying off our mortgage one of the biggest reasons that we came up with was peace of mind.

Now when we know that our four-year peace of mind will cost us in the worst case scenario $10,185.28, it is time to dig in and review our current financial goals.

Our current financial goals & paying off our mortgage fast

Build up a one-year emergency fund: That’s right, we are going for a full year of expenses in cash. The 12-month emergency fund is a big one for us since we are exploring entrepreneurial opportunities to support the next phase of our lives.

Invest in our Health Savings Account (HSA): With the cost of healthcare rising, we are hoping to use our HSA as retirement funding. Since this is tax-free money, we are looking at funding our occasional annual healthcare expenses with cash to allow our HSA to grow.Read More: Health Savings Account (HSA) & Retirement Plan

Max Out aROTH IRA: To date, Rob and I have only invested in our 401k retirement plans. Now that we are hellbent on being prepared, we have opened a ROTH IRA. With us being in our mid-forties we do not have much time to mess around. Therefore our goal is to fully fund our ROTH IRA until retirement or until we no longer qualify. (Whichever comes first)

Be prepared with some sinking funds: In 2018 our goal was to pay off $50,000 worth of debt. Now that goal has been met we are making sure that we are prepared for upcoming expenses so that we do not ever get in debt again.

Employer Stock Purchase Option: Rob’s employer offers a program that allows employees to purchase up to $1,800 worth of stock and they match 15%. The program resets March 31st of every year. Since this will be our first year participating, we will purchase $1,800 worth of stock between January 2019 and March 2019 then drop down to purchases of $140 every pay period.

The cost of paying off our mortgage early

To pay off our mortgage in the four-year timeframe we will need to come up with $2,659.59 a month or $31,915.08 a year which is 39% of our take-home pay. To do that, we will definitely need to modify the numbers below.

CATEGORY

PERCENT

Auto Gas & Maintenance

2.9%

Miscellaneous

3.2%

Employer Stock Purchase

3.9%

Sinking

5.9%

Dining and Entertainment

6.9%

ROTH

14.6%

Consumables

7.9%

Monthly Bills

31.7%

Savings

23.0%

Total

100.0%

** The amounts above are our 2019 goals for our take-home pay. The numbers exclude our HSA and our 401k contributions as they are paid through our payroll deductions.

To be able to meet still the ambitious goal of paying our home off in four years we would have to sacrifice our goals of:

Purchasing stock with the employer match of 15%

Not invest in a ROTH IRA account for our retirement

Cut our savings contribution by $16,715.08

What is the benefit of paying off the mortgage early?

Here are a few things we came up with…

Eliminate years of payments to the bank

Once the mortgage is satisfied, your cash flow will increase greatly

Reduce retirement expenses

Save money on mortgage interest

Peace of mind of not owing money to anyone

The benefit of paying off the mortgage early varies from person to person and situation to situation. For Rob and I to start accelerating our mortgage pay off this year to a four-year plan, we would have to forfeit three of our primary financial goals.

With the peace of mind that we are sure to gain from the employee stock purchase, ROTH IRA investment, and meeting our goal of having a twelve-month emergency fund on hand, Rob and I will forgo the peace of mind of accelerating our mortgage pay off this year.

As with all goals, especially financial goals, we will review this option in the future to see how it will help us to build wealth and peace of mind.

Hi! I am Heather. A mother of two and wife of 27 years to my best friend. After our kids left home, I began digging deep to learn more about myself and about my lifelong partner. This journey helped us to pay off over $50,000 worth of debt in only six months, kick my twenty-something year relationship with smoking, and get in touch with my dreams. This experience prompted Rob and me to start this site, Empty Nestin' in hopes of helping others navigate through this exciting time of being empty nesters.